Payment Cap: Limit on the amount by which a borrower’s adjustable rate mortgage payments may increase, regardless of rise in interest rates. May result in negative amortization.

Per Diem Interest: Interest calculated per day. Depending on the day of the month on which closing takes place, borrower pays interest from the date of closing to the end of the month. The first mortgage payment of a loan is generally due the first of the following month.

Periodic Interest Rate Cap: A limit on the amount that interest rates can change at each adjustment period.

Permanent Loan: A long term mortgage of ten years or more.

Piggyback: A combination of two loans. Example: A loan is made for 90% of the home price. 80% of the purchase price is supplied by a 1st mortgage and 10% by a 2nd mortgage. The 2nd mortgage is piggybacked on the 1st.

Pledged Account Mortgage (PAM): Money is placed in a pledged savings account. This fund, plus earned interest, is used to gradually reduce mortgage payments.

PITI: Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment, also called Monthly Housing Expenses.

Points (or Discount Points): Money paid to a lender at closing in exchange for a lower interest rate. Each point is equal to 1% of the loan amount.

Power of Attorney: Legal document authorizing one person to act on behalf of another.

Prepaid Expenses: Taxes, insurance and assessments paid in advance of due dates.

Prepaid Interest: Interest charged to a borrower at closing to cover interest on the loan between closing and the end of the month in which the loan closes.

Prepaid Mortgage Insurance (PMI): See Mortgage Insurance

Pre-paid items: Items required by lender to be paid at closing prior to the period they cover such as prorated property taxes, homeowners insurance and pre-paid interest.

Prepayment: Full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property, or refinances the existing loan.

Prepayment Penalty: - Fee that may be charged by a lender for early payment of debt.

Prequalification: The process of estimating how much money a prospective homebuyer will be eligible to borrow prior to application for a loan.

Primary Mortgage Market: Includes banks, savings and loans, credit unions, and mortgage banks that make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to lenders such as FNMA in the secondary mortgage market.

Prime Rate: Lowest commercial interest rate charged by a bank on short-term loans to its most credit-worthy customers. Often used as an index for home equity lines of credit.

Principal: The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI): Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 %.

Processing Fees: Fees paid to the lender to compensate for the administrative functions involved in preparing your loan for funding. These functions include reviewing your application, income, and assets, ordering and obtaining a clear title report and securing title insurance, coordinating with the closing agent, obtaining homeowners insurance verification, coordinating the appraisal, and others.

Processed/Processing: The time between application and loan closing. During this time your loan processor, reviews your income and asset documentation, obtains a title insurance policy and clears any clouds on title, orders and reviews your property appraisal, obtains evidence of homeowners insurance, verifies the flood zone status of your property, and coordinates the signing and closing of the loan. This process typically takes 30 to 45 days.

Profit and Loss Statement: Financial statement showing sales, expenses and profits over a period of time. Often a requirement for self-employed borrowers.

Property Tax: A government tax based on the market value of a property.

PUD (Planned Unit Development: A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owner.

Purchase Agreement: Contract signed by buyer and seller stating the terms and conditions under which a property will be purchased.